Splitting Linked Transactions
One of the requirements of a Broker Ledger in a Pay As Paid environment is to only release transactions for payment when the corresponding cash has been received from the relevant third party. For example, to only pay an underwriter an amount due for a new policy, once the premium has been paid by the client.
To achieve this, Financials uses an intra-transaction reference to identify the set of ledger transactions that make up a particular business transaction (claim or premium). This reference is maintained on each ledger transaction in the group in the Link Reference 2 field.
The Pay As Paid principle must be applied if a transaction within a linked set of transactions is split. When one of the linked transactions is split, the remaining transactions in the set are automatically split in the same proportions. For example, if a client only pays half of an outstanding premium, the premium posting is split manually to reflect this. When this split is posted, the system automatically splits the corresponding underwriter and commission transactions in same proportion, that is, in half.
In some cases not all of the linked transactions are split, or the linked transactions are grouped prior to being split.
See Splitting Linked Transaction Exceptions below.
If, subsequently, one of the split transactions is split further, the system splits the related transactions in the same way. To achieve this it assigns a Split Link Reference to each set of split transactions to enable them to be grouped together for further processing, if required.
This processing is best illustrated using an example. Different colors are used to identify the related transactions and links.
Stage 1: A new premium is sold, resulting in the following new journal posting. All the transactions in the journal have the same transaction reference and intra-transaction reference.
| Tx Ref | Account | Amount | Intra-Tx Ref (Link Ref 2) | Split Link Ref |
|---|---|---|---|---|
| ABC | Client | 100 DR | 1 | |
| ABC | Underwriter | 90 CR | 1 | |
| ABC | Commission | 10 CR | 1 |
Stage 2: The client pays only GBP 50 of the outstanding premium and this is posted to the client account using Ledger Entry. The same intra-transaction link reference is assigned to the cash posting.
| Tx Ref | Account | Amount | Intra-Tx Ref (Link Ref 2) | Split Link Ref |
|---|---|---|---|---|
| ABC | Client | 50 CR | 1 |
Stage 3: The original client premium posting is split in Account Allocations to record the part payment, resulting in the following new set of transactions on the client account. A split link reference is assigned to each split transaction.
| Tx Ref | Account | Amount | Intra-Tx Ref (Link Ref 2) | Split Link Ref |
|---|---|---|---|---|
| ABC | Client | 50 DR | 1 | 1 |
| ABC | Client | 50 DR | 1 | 2 |
Stage 4: The system automatically splits the other postings with the same Transaction Reference/Intra-Transaction Reference. The appropriate split link reference is assigned to each split transaction to group each set of related split transactions.
| Tx Ref | Account | Amount | Intra-Tx Ref (Link Ref 2) | Split Link Ref |
|---|---|---|---|---|
| ABC | Underwriter | 45 CR | 1 | 1 |
| ABC | Underwriter | 45 CR | 1 | 2 |
| ABC | Commission | 5 CR | 1 | 1 |
| ABC | Commission | 5 CR | 1 | 2 |
Stage 5: The client cash receipt is matched to the outstanding premium.
| Tx Ref | Account | Amount | Intra-Tx Ref (Link Ref 2) | Split Link Ref | Allocation Marker |
|---|---|---|---|---|---|
| ABC | Client | 50 DR | 1 | 1 | Allocated |
| ABC | Client | 50 DR | 1 | 2 | Not Allocated |
| ABC | Client | 50 CR | 1 | Allocated |
Splitting Linked Transaction Exceptions
In general, when a transaction is split the system automatically splits any transactions that contain the same intra-transaction link in the same proportions. However, there are some exceptions to this rule, as follows:
- Any linked transactions that have been fully matched and marked as True Rated are not split.
- Any revaluation postings that contain the same intra-transaction link reference are accumulated by Allocation Marker and only the total by Allocation Marker is split. The Allocation Marker on the revaluation postings are taken from the revalued transactions.
The Agency/Broker Account Type on the original split transaction, and on each of the linked transactions, also determines whether or not the linked transactions are split.
| Agency/Broker Account Type on Split Transaction | Split processing |
|---|---|
| Client | Split all linked transactions, regardless of the Agency/Broker Account Type. |
| Carrier | Split all linked transactions, regardless of the Agency/Broker Account Type. |
| Other | If linked
transactions exist for BOTH the Client and Carrier account types, do not split
any of these linked transactions.
If linked transactions exist for the Client but not for the Carrier, split any linked Client transactions. If linked transactions exist for the Carrier but not for the Client, split any linked Carrier transactions. If linked transactions do not exist for either the Client or Carrier, split these linked transactions (for Other and Nominal account types). |
| Nominal | Do no split any linked transactions. |